Tax Regime For Portuguese Law Firms ‘Could Change In A Year'

Author:Iberian Lawyer
Profession:Iberian Lawyer
 
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Change of leadership at Portuguese Bar Association as well as new government tax secretary raises hopes that law firms could soon pay less tax and therefore invest more in technology and other infrastructure

There are high hopes among lawyers in Portugal that there could be an imminent change to the country's tax law - perhaps within a year - that would mean law firms would be subject to the general tax regime, which would enable them to be taxed like a corporation and therefore build up reserves to invest in their infrastructure. Under the current regime for Portuguese law firms, law firms are required to distribute all of their profits each year. When a law firm makes a profit, each of the firm's partners must pay individual income tax on the profit, which including surcharges, can be as high as 53 per cent. However, Portuguese law firms have long wanted to be taxed on a corporate basis, which means that, not only would they not have to distribute all of their profits each year, but they would be subject to a tax rate of 21 per cent. To make matters worse for Portuguese firms, the tax regime applicable to them is not applied to the Portuguese offices of foreign law firms. "Portuguese law firms are forced to pay taxes in advance - this is a problem of the tax regime - whereas Portuguese branches of foreign firms are subject to a different tax regime," says João Afonso Fialho, president of the Portuguese law firm association ASAP (Associação das Sociedades de Advogados de Portugal). "They [Portuguese firms] are required to distribute all the profits of the law firm, which is unfair in terms of competition - Portuguese law firms want a completely free market to level the playing field." Afonso Fialho argues that the chances of the law changing - possibly within one year - have improved and are now looking good. Consequently, it is hoped Portuguese law firms will be given the option of being taxed under the present regime or being taxed under the general tax regime like a corporation. "There is a good prospect of [a change in the law] happening: the new chairman of the Portuguese Bar Association, Guilherme Figueiredo, supports the change, so the legal profession may be in a better position to influence the government," he says. Afonso Fialho believes the cause could be helped by the fact that the new Secretary of State of Tax Affairs, Fernando Rocha Andrade, is not a lawyer, so he could not be accused of acting out of self-interest. Afonso...

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